Southwest Airlines hit with ERISA class action over alleged 401(k) fund mismanagement

Southwest Airlines is facing a class action lawsuit alleging that it failed to properly oversee investment options in its employee retirement plan, leading to millions of dollars in losses for its 401(k) plan participants.

The suit, filed by Sanford Heisler Sharp McKnight in the US District Court for the Northern District of Texas, claims the airline breached its fiduciary duties under the Employee Retirement Income Security Act.

The law firm is no stranger to high-profile class actions involving company retirement plans. In December, it secured preliminary approval for a $69 million settlement in an ERISA case against UnitedHealth Group, which was among the largest rulings of its kind. Earlier in the year, it helped obtain final approval of a $61 million ERISA settlement against General Electric.

According to the complaint shared with InvestmentNews, Southwest began offering the Harbor Capital Appreciation Fund as an investment option in its 401(k) plan in 2010, after which it went through years of underperformance. The fund, an active strategy overseen by the large-cap growth investment team at Jennison Associates, was initially offered in the plan as a mutual fund before being migrated into a collective investment trust.

The lawsuit alleges that by December 2018, the Harbor fund had lagged behind its benchmark, the Russell 1000 Growth Index, over the prior three-, five-, and nine-year periods. Despite that, the law firm said Southwest neglected to replace the fund, which remains part of the plan and holds over $2 billion in assets.

Charles Field, a partner at Sanford Heisler Sharp McKnight and counsel for the plaintiffs, said the fund accounts for approximately 17 percent of the plan’s total holdings.

“Plan participants have invested over $2 billion in the Harbor Capital Fund. As fiduciaries to the plan, defendants are obligated to monitor the plan to ensure that all investments are prudent,” Field said in a statement on Wednesday.

The lawsuit names Southwest Airlines, its board of directors, and multiple committees responsible for overseeing the plan as defendants. Acting on behalf of the proposed class of roughly 60,000 plan participants, the plaintiffs said the airline’s failure to act has cost employees millions of dollars in retirement savings.

Apart from seeking financial restitution for the plan’s losses, the plaintiffs are pushing for Southwest Airlines to remove imprudent investments from the plan and demanding the removal of the fiduciaries who "violated their duties to the Plan’s participants and beneficiaries under ERISA."

“As fiduciaries of the plan, defendants are duty bound to monitor the plan’s investments continuously and remove imprudent ones,” said David Tracey, a partner at Sanford Heisler Sharp McKnight. “It is precisely that duty that this complaint alleges the defendants have breached by failing to remove the Harbor Capital Fund.”